Applying Accounting to Your Personal Life

Posted by Rebekkah On June - 20 - 2013 0 Comment

While accounting may seem like it’s just for accountants and those in business, it’s actually applicable and helpful in your personal life too. Statistics show that 4 out of 10 Americans live paycheck to paycheck. By learning some basic accounting strategies, you can manage your money more efficiently to see precisely where your money is going, which will ideally encourage you to save more money and break the cycle of emptying your bank account between pay periods.

Below are accounting basics that you can apply to your everyday life to help stay on financial track.

Accounting Basics

It used to be that we would carry our checkbook with us and balance them on the go, but it’s not likely that you are carrying a checkbook anymore. Most people now use online bill pay, automatic monthly withdrawal, and debit cards for purchases and for cash withdrawals. This use of electronic banking makes it trickier to know where your money is going because access is so fast and easy. Follow these 4 accounting basics to help manage your money to learn where it is truly going and to find areas to save:

Step 1 — Identify and Budget

The first step is to identify every single monthly expense you have. Don’t just think of the large expenses like rent and car payment, but identify categories such as food, gas, entertainment, clothing, savings, and restaurant spending. If you don’t know exactly what you spend on some of the more fluctuating expenses, take your best guess to get things started and keep a more watchful eye on this discretionary spending in the future.

Step 2 — Track and Record

Here is where you will need to invest a bit more time than you may typically spend. Track and record all of your spending, even that $20 you took out of the ATM. Did it go for coffee or another on-the-go purchase? Do you still remember what you spent it on? Use your bank statements, receipts, and online banking tools to help you track where your money is going. You want to record each purchase and payment to balance your spending each month. You don’t need accounting software for this. You can create a simple spreadsheet or check to see what features your bank has online to assist you in tracking your spending and maintaining a budget.

Step 3 — Analyze Your Spending

This is the step that really teaches you about your spending habits. Remember those categories that you had to guess at because you weren’t quite sure you what you spent per month at restaurants and on clothing? Step 3 is where you face the music. It may take a few months to get an accurate reading on what your average is for some of the fluctuating categories, but by analyzing your spending each month you can keep yourself in check and look for areas of opportunity to reprioritize your spending habits.

Step 4 — Hold Yourself Accountable

In a business setting, an accountant would analyze spending in Step 3 and make suggestions to her client on how to improve his spending habits. For your personal accounting you will be responsible for holding yourself accountable. You can do this by returning to Step 1 after a few months of tracked spending and reworking your budget. Look for areas in which you can reduce your spending or eliminate spending all together. Maybe it’s buying a different brand of shampoo or skipping the afternoon latte, but there are all sorts of ways to spend less every day.

Following the above accounting tips can be eye-opening and will allow you to see where your money is truly going. After a few months, this process of personal accounting will seem like second nature and will get you well on your way to achieving your financial goals.

ABOUT THE AUTHOR:

This article was written by Richard Craft, an MBA student who looks forward to sharing more of his knowledge with you so you can make better financial decisions. If you’re interested in a career in accounting, he recommends looking up accounting jobs with moneyjobs.com.

Comments are closed.